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You are evaluating two similar bonds. Both mature in four years, both have a K1,000 par value, and both pay a coupon rate of 10
You are evaluating two similar bonds. Both mature in four years, both have a K1,000 par value, and both pay a coupon rate of 10 percent. However, one bond pays that coupon in annual installments, whereas the other makes semiannual payments. Suppose you require a 10 percent return on either bond. Should these bonds sell at identical prices or should one be worth more than the other? What prices do you obtain for these bonds? Can you explain the apparent paradox?
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